1.2 core File mod - no thumbnails of images that are smaller than 600x600

On our test site we're seeing a strange problem - uploaded images _smaller_ than 600x600 (no definitive test yet but I note there is a 600x600 step in the input processing so am guessing) don't end up with a proper thumbnail showing - they instead show the default thumbnail (blank)

I've gone through the code and our theme does not touch the default action which is /mod/file/views/default/file/icon.php for JPEGs (which is what we're talking about here)

It appears all the various sizes are created:

e.g.

1237848606m_331b632d9fe62823f6a686615cf2bb1e.jpg            smallthumb1237848606m_331b632d9fe62823f6a686615cf2bb1e.jpg
largethumb1237848606m_331b632d9fe62823f6a686615cf2bb1e.jpg  thumb1237848606m_331b632d9fe62823f6a686615cf2bb1e.jpg

these all look like the right sizes - and the database seems to have them listed - but the one that should be pulled up is not.

Anyone else seen this or have a solution? Since this is core code I have not (yet) gone into it in depth.

thanks

richard